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Russian Billionaire's Swiss Empire Rocked by U.S. Sanctions

(Bloomberg) -- Russian billionaire Viktor Vekselberg’s constellation of Swiss industrial companies got hammered by investors on Monday after the U.S. imposed sanctions on the oligarch and his Renova Group investment vehicle.

Renova owns stakes in three Switzerland-based equipment manufacturers, Sulzer AG, OC Oerlikon Corp. and Schmolz + Bickenbach AG, as well as a holding in United Co. Rusal, the giant aluminum producer owned by Oleg Deripaska, another billionaire hit by the measures. Shares in the companies tumbled even as Vekselberg, 60, took steps to lower his stake in Sulzer to below a majority in a bid to insulate the company.

The U.S. Treasury on Friday included Vekselberg and Renova on a list of oligarchs, companies and senior government officials subject to sanctions that it said were intended to punish the country for actions in Crimea, Ukraine and Syria, and for attempting to subvert Western democracies. After founding Renova in 1990 and accumulating interests in Russia’s oil, gas and aluminum industries, Vekselberg bought stakes in Oerlikon in 2006 and Sulzer the following year as part of an expansion outside his home country.

The Russian citizen, who makes regular appearances at the World Economic Forum in Davos, spends some of his time in Switzerland. His net worth is $16.4 billion, according to Bloomberg’s billionaires index. In addition to the Swiss and aluminum holdings, he also controls Russian regional airports. In 2013, he sold 12.5 percent of Russian oil joint venture TNK-BP for $7 billion to the company’s state-owned oil company, Rosneft.

The businessman on Monday unveiled a plan aimed at shielding Sulzer from the U.S. measures. To “minimize disruptions to Sulzer’s business,” Renova will transfer 5 million shares back to the industrial-pump manufacturer, according to a statement, bringing its holding to under 49 percent. It previously held about 63 percent of the company, based on data compiled by Bloomberg.

Sulzer is exposed to the sanctions because Vekselberg’s shareholding is above 50 percent, according to Baader Helvea analyst Reto Amstalden, adding that this is not the case for Oerlikon and Schmolz. Vekselberg holds a 43 percent stake in Oerlikon and 25 percent in Schmolz, according to the companies.

“Oerlikon is neither considered a sanctioned nor a blocked party because Mr. Vekselberg’s ownership interest in Oerlikon is less than 50 percent,” the company said in a statement.

Sulzer stock fell 14 percent to 108.30 francs at 3:37 p.m. in Zurich, according to data on the Swiss exchange’s website. At this price, the transferred shares would be worth about 542 million francs ($567 million). Oerlikon shares fell 5.7 percent while Schmolz dropped 6 percent.

Schmolz, a maker of specialized steel, said in a separate statement that it expects “not to be materially affected” by the U.S. sanctions because Renova holds “substantially less than 50 percent” of the company.

The transfer of shares from Renova to Sulzer would increase the latter company’s net debt to 1 billion francs, which may be temporary if the stake is placed elsewhere, Baader’s Amstalden said.

For its part, Sulzer said it’s “in close contact with authorities and believes that this transaction will assuage any concern as to the independence of Sulzer from the Renova Group.” The share transfer will happen “during the course of the week.”

Revamp

In a sign that the effects of the U.S. sanctions are still unclear, Sulzer also specified Renova will be paid only after Sulzer receives confirmation that the payment “does not expose Sulzer to the risk of primary or secondary sanctions,” it said. The purchase price will be based on Sulzer’s trading this week and will be reduced if the stock drops, or if the company sells the Renova stake to another buyer at a lower price, it said.

Sulzer, which also makes valves and seals, is being revamped following management upheaval and has moved to dodge the downturn in commodity prices through diversification into cosmetics supplies like mascara brushes.